On January 1, 2009, Neal Corporation acquired equipment at a cost of $540,000.Neal adopted the sum-of-the-years'-digits method of depreciation for this equipment and had been recording depreciation over an estimated life of eight years, with no residual value.At the beginning of 2012, a decision was made to change to the straight-line method of depreciation for this equipment.The depreciation expense for 2012 would be

Question

Quizplus · Accepted Answer

To calculate the depreciation expense for the straight-line method, we need to first calculate the total depreciation that would have been recorded under the sum-of-the-years'-digits method.

The formula for sum-of-the-years'-digits method is:
Depreciation expense = (Remaining useful life of the asset / Sum of the years' digits) x (Cost of the asset - Residual value)

In this case, since there is no residual value, the formula simplifies to:
Depreciation expense = (Remaining useful life of the asset / Sum of the years' digits) x Cost of the asset

At the beginning of 2012, the remaining useful life of the asset would be 6 (since it has been 3 years since it was acquired). The sum of the years' digits for an eight-year life is:
1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 = 36

So the total depreciation under the sum-of-the-years'-digits method would be:
Depreciation expense = (6 / 36) x $540,000 = $90,000

Now, to calculate the depreciation expense for 2012 under the straight-line method, we need to first calculate the remaining book value of the equipment at the beginning of 2012. The book value after three years of depreciation under sum-of-the-years'-digits method would be:
$540,000 - $90,000 - $90,000 - $90,000 = $270,000

The remaining useful life of the asset after 2012 would be:
8 - 3 = 5

So the depreciation expense for 2012 under straight-line method would be:
Depreciation expense = ($270,000 / 5) = $54,000

Therefore, the correct answer is B) $45,000.

On January 1, 2009, Neal Corporation Acquired Equipment at a Cost